VDM Group (VMG)

[mark100]

VDM Group are a consulting engineer and contracting group based in WA. They raised $8.2m @ $1 per share and listed yesterday. The offer was heavily oversubcribed. They opened at 1.50 and have traded between 1.50 and 1.60.

The purpose of the listing is to raise additional capital and acquire a consultant and contracting firm. These companies are being purchased with shares. There is no shareholder selldown.

The public offer was for 16% of the company. The major holders all have their shares escrowed for 12 months.

66% of profits are forecast to come from the consulting divisions with the remainder to come from contracting.

The are forecasting FY06 NPAT of $7.02m. This puts them on a prospective PE of 11 and annualised yield of 4%, representing a 30% payout. Going forward they expect to pay 50-65% of earnings as divs so the yield should rise next year.

The forward PE's of the other listed consultants are:
CDD 16
LYL 16
COF 17

After the float, VDM Group will consist of 3 consulting companies and 3 contracters.

Consultants:
Van der meer Consulting: Operate in WA, NSW, QLD, Vietnam and Bahrain. Specialise in civil, structural and project management
Burchill Partners: Operate in QLD. Civil, Structural and Town Planners
Belling: Operate on Gold Coast. Environmental Engineers, ecological assessment, water cycle management

Contracters:
Civmec: Civil and Mechanical construction. Servicing mining, resourse and Oil & Gas sector
Keytown Constructions: Builder providing design, engineering and construction services to commercial, industrial and residential sector
Structural Fabrications (40% owned): Steel fabricators for construction industry

Positives I see are:
At 1.50 it is still trading at a 30% discount to similar companies
The original Van der meer group has been operating for 29 year
Other listed companies in the sector have performed very well
The WA and QLD focus is also beneficial

The negaitves I see are:
Possibly more residential property focused than comparable companies
Keytown Constructions is undertaking 3 JV developments consisting of commercial, residential and industrial.
Poor liquidity

Note: I purchased at 1.50

[RiskyBiz]

IMO this is a great company. Well positioned in the WA and QLD markets and good value compared to its peers.


picked up some in the IPO..happily holding

[mark100]

Moved to a new high today of $1.80, up 6% for the day on reasonable volume. Liquidity is poor however.

FY06 PE based on prospectus forecasts is now 13.5, still a discount to the sector.

Mark

[steve fleming]

quote:Originally posted by mark100

Moved to a new high today of $1.80, up 6% for the day on reasonable volume. Liquidity is poor however.

FY06 PE based on prospectus forecasts is now 13.5, still a discount to the sector.

Mark

This is a well run profitable company with great growth prospects both nationally and internationally,...unfortunately, I had my cheque for the IPO subscription returned to me as well....so kind of lost a bit of interest in it after that...and not too keen to pay almost 2 X the IPO price to enter, however good luck to holders....you will do very well

[RiskyBiz]

VDM Group
New high of $1.99 today.
From an IPO price of $1.00 to this in under 2weeks!
I think I am going to have to take some profit!

[mark100]

VDM's construction division, Civmec has announced a new $17m contract with RIO. A couple of weeks ago they also won a new $30m contract with the Ports Corp of QLD.

Civmec's Work in hand is now around $60m according to their annoucement.

Mark

[mark100]

These guys seem to be picking up plenty of contracts which bodes well for 2007FY.

They recently did a placement at 1.50 which has put a lid on the price a bit however they used some of these funds for what seems like a very good value acquisition (see recent presentation). They also have around $7m left over for future acquisitions.

On my estimates I think they could earn around 15.5cps in FY07 which has them sitting on a potential PE of around 11.5. This compares well with the better known companies in its sector, which tend to trade at around 15-20x.

Mark

[SEC]

Hi Mark, I've been watching VMG since the IPO and like its profile but its liquidity is dreadful and as a result I have no real interest in buying a stake. I wonder if the likes of WOR are running their ruler over VMG, WOR are about to announce a record profit and have substantial cashflow to enable a few bolt-on acquisitions like VMG. Comsec has 07 eps estimates of 13.5cps, where have you got your 15.5cps estimate from?

SEC (WOR)

[mark100]

Hi SEC,

VMG is forecast to report a NPAT of around $5.5m for FY06. The 'proforma' FY06 profit is $7m, which reflects a full year of contributions from the businesses acquired at the time of the IPO.

I have assumed 10% profit growth from existing operations for FY07. Given their main contacting division, Civmec, has almost double the work in hand now as it did a year ago I think 10% overall organic growth is a reasonabale assumption. This increases NPAT from existing operations to $7.7m in FY07.

They recently acquired a 75% stake in a contractor called Cape Crushing, a WA based resources contractor. In the recently released presentation, VMG forecast that Cape Crushing will earn $3.6m NPBT in FY07. This works out at a $1.89m NPAT contribution to VMG.

This gives a total NPAT for VMG of $9.6m in FY07. The recent placement raised $12m and increased fully diluted shares on issue to 62m. This gives EPS of 15.5c

Also, of the $12m raised in the placement, only $4.8m was used to acquire Cape Crushing, leaving $7m available for other acquisitions.

If they can acquire another privately owned consultant or contractor on an earnings multiple of say 5x, that gives them considerable scope beat my EPS estimate.

Also, I checked commsec's forecasts and they are forecasting 13.5c EPS for 2006 and 15.3c for 2007.

cheers
Mark

[Bobbyvee]

The latest VMG report released last week revealed a 70% increase in revenue combined with 81% increase in NPAT. EPS over 15c exceeding expectations (13.5c). Fully franked dividend of 3.35% pa and expected to grow. This report has stimulated increased sale volumes which in a tightly held stock should result in price increases over the coming months.

With a market cap. over $100M the company should also come to the brokers' attention.



Cheers
Bobbyvee